Readers of this blog know that VersaTel Solutions was built from the ground up. Our podcast The Business Behind Small Business shares tips on founding small businesses and growing them into successful companies. But, there are advantages to purchasing an established business. For example, a lot of the missteps and stumbling blocks have already been navigated by the previous owner.
If you decide that buying an existing business is the way you want to go, here’s a pre-purchase checklist from SmallBizTrends (it involves a lot of research, so be prepared to delve deep!):
Look into the History – and Future – of Businesses in the Area
Does the type of industry – creative arts, construction, environmental stewardship, hospitality, retail, etc. – thrive in the area? What about the physical location of the business? What’s the history there? What type of business development is pending in the area. For example, You’re thinking of buying a manufacturing company that’s so successful, there are three shifts of employees. But a quick search shows you that a huge distribution center, offering higher wages, will be opening in the same county within six months. Will the employees of your company jump ship? Will you have to offer a better employee wage and benefit package?
Double Check All of the Equipment Assets and Intellectual Property
Equipment for businesses are tangible assets. You can put your finger on them. You can know their purchase price and their value now (after depreciation). You can determine if they are viable to use going forward or are obsolete. Intellectual property isn’t tangible. It includes things like inventions (which must have a patent), designs, and brand names. The company should also have a logo that’s connected to the brand. The logo is the symbol for the business, and as such, it is an asset. Also, will you be able to keep the business’s existing contact information, such as website, FB page, phone number, email address?
Look at Financial Statements and Sales Records for the Past Three Years
Even if you’re buying a business that is a sole proprietorship, you may need an accountant to go over the details of financial statements and sales records. You need tax returns for the business for the past 3 years. In addition to tax returns, you should get a copy of the business plan. Do the balance sheets match up with the information in the plan? The best advice is to hire an accountant who can verify that the accounting methods were correct.
Have a List of Debts and Loan Agreements
These often involve inventory and equipment. The current owner of the business may have kept the inventory as a separate asset entity. You should be able to see by looking at business balance sheets. Will any monies owed on inventory be paid off with the sale proceeds? Or will the debt owed on the inventory be paid off as it is sold (by the new owner)?
At first glance, buying an existing business may sound like an easier proposition than founding a new business. But there are a lot of things to consider before you do. Whether you bought your business or it was a startup, there’ll come a time when you should outsource tasks so you can concentrate on growing your business. That’s where VersaTel Solutions can help. Our experts can take over bookkeeping, HR, and administrative responsibilities, giving you time to focus on the big picture. Contact us to find out how we can help you make your business successful.